ISAs now come with added appeal
THE HUMBLE ISA has been turbo charged from July, as a host of changes make it an even more compelling option for savers looking for tax-efficient investments – writes Ian Lowe, director at David Williams IFA.
Savers now have complete flexibility to shelter both cash deposits and investments in shares and funds from tax, as the distinction between different types of ISA is abolished.
Previously, the Individual Savings Account (ISA) was split into two parts: the cash ISA, with a maximum annual investment of £5,940, and the stocks and shares ISA. The maximum that could be saved into a stocks and shares ISA was £11,880 per tax year – minus anything paid into a cash ISA.
Cash ISAs could be switched into stock market investments, but transfers back from equity investments into cash ISAs werw not permitted. This restricted investors’ ability to dip in and out of volatile markets and detered some from moving away from cash.
These shackles disappeared from July 1. All existing accounts became New ISAs, giving you the ability to save up to the full allowance into either cash or equity-based investments and switch between the two at will. At the same time, the annual allowance per person jumped from £11,880 to £15,000.
The ISA tax incentives remain compelling: there is no further income tax on drawings from an ISA and this money does not have to be declared on a tax return. Any profit on the sale of investments in an ISA is free from capital gains tax.
We expect that the new ISAs will become an even more valuable financial planning tool for successful business owners and managers.
Some executives will find their ability to save into a pension is now constrained by the £40,000 annual cap on contributions or by the £1.25 million Lifetime Allowance. The New ISA gives a flexible option to invest a further £15,000 per tax year for the long term.
And, unlike pensions, you can save the full £15,000 into an ISA regardless of your earnings. This makes the ISA an attractive option for higher earners who have a non-working spouse and want to gift money to their spouse to build up additional savings in their own name.
To discuss how you can maximise the opportunities of the New ISA contact David Williams IFA. Call us on 01604 621302 or use our contact page.